Rating downgrade doesn’t discourage airport director

With two consecutive months of improved passenger traffic counts, and a third projected for this May, Kelly J. Fredericks, president and CEO of the Rhode Island Airport Corporation (RIAC), says Green Airport “has come out of the decline.”

But that’s not how the bond specialists at Fitch Ratings see it.

On Tuesday, the agency downgraded the Rhode Island Economic Development Corporation's approximately $243 million in outstanding RIAC “senior lien general airport revenue bonds to 'BBB+' from 'A-,'” according to a Fitch press release.

“We were hoping we have a good story,” Fredericks said. He said he is “disappointed” in the rating reduction, although he took solace in that Fitch gave RIAC a “stable outlook.”

According to a release issued by Fitch, “the downgrade reflects the airport's plans for additional senior lien parity debt borrowings, while the airport continues to struggle to reverse a prolonged period of traffic declines that continues into the current fiscal year. Higher planned debt will lead to some elevation in overall leverage levels, and could have a modest impact to airline costs and coverage ratios at the current traffic base.”

Fitch goes on to say Boston's Logan Airport's “operational dominance and expanding service levels in the greater New

England air trade service area exacerbates the challenge in the near term for RIAC to improve its market position.”

Fitch said the stable outlook is reflective of its expectation that the airport “is nearing a base level of traffic that is sustainable and incorporates the current borrowing plan.”

Fredericks said the rating downgrade is more of an issue of perception than reality.

“This absolutely changes nothing,” he said.

Where it might be felt, he said, is on the refinancing of some bonds with slightly higher than projected interest rates. The change in rating will not affect the schedule for airport improvements, including construction of a deicing fluid recovery system, extended runway safety areas on Runway 16-34 and the extension of Runway 5-23.

Fredericks is confident that recent increases in traffic are more than a fluke, and he expects the numbers to keep growing. He said that airlines are looking to increase the number of available seats from Green and that he expects the airport will see an overall increase in seats ranging from 3.5 to 10.5 percent in the near future. He put the current “load factor” (the number of available seats that have passengers) at 86 percent.

He said this growth in seats is projected to come from airlines using larger aircraft to service Green rather than through the addition of service. Nonetheless, he hopes for additional service but was not prepared to elaborate at this time.

Fredericks also feels Green is in a good position. Its market area is larger than Manchester, N.H., which is often viewed as a competing airport. He noted that passenger traffic counts at Manchester have declined and those at Green are gaining. He said his emphasis is on air service development.

“We’re going to continue to go full steam ahead,” Fredericks said.

In its report, Fitch notes that the airport's $237 million capital plan (CIP) is expected to be funded with a combination of grants, new debt and passenger facility charges (PFC). The airport has secured a loan through the Clean Water State Revolving Fund for $30.2 million for airfield related projects. Additional debt is contemplated for 2015 to provide partial funding sources (about $30.1 million) for the runway extension project.